VAT and corporate tax in the UAE: what every business must do

Value added tax has been part of business life in the UAE since 2018, and corporate tax since 2023. Both are administered by the Federal Tax Authority, both require registration, returns and records, and both carry fixed penalties for late or wrong filings. This article sets out what a business must do under each, in plain terms. It is general information; the rules have exceptions and your accountant or tax adviser should confirm how they apply to you.

VAT: who must register

VAT applies at 5 per cent to most supplies of goods and services in the UAE. A business must register when its taxable supplies and imports in the last twelve months, or expected in the next thirty days, exceed AED 375,000. It may register voluntarily above AED 187,500. Registration is made online with the Federal Tax Authority, and a tax registration number must appear on every tax invoice.

VAT: returns, payment and records

• Returns are filed for each tax period, usually quarterly, within 28 days of the period end, and the tax due is paid by the same date.
• Tax invoices must contain the details the executive regulation requires, and simplified invoices may be used for smaller retail sales.
• Records, including invoices issued and received, credit notes, import documents and the VAT account, must be kept for five years, and fifteen years for real estate.
• Input tax can be recovered on expenses used for taxable supplies, with exceptions such as entertainment and certain vehicles.
• Certain supplies are zero-rated (for example exports and international transport) or exempt (for example residential leases and some financial services); the distinction affects input tax recovery.

Corporate tax: the basics

Federal Decree-Law No. 47 of 2022 introduced corporate tax for financial years starting on or after 1 June 2023. The rate is 0 per cent on taxable income up to AED 375,000 and 9 per cent above that. Almost every company and business in the UAE must register with the Federal Tax Authority, including free zone companies and many sole establishments, and must file a return within nine months of the end of each financial year. Small business relief is available to eligible businesses with revenue up to AED 3 million for a limited period.

Free zone companies

A free zone company can be a qualifying free zone person and pay 0 per cent on its qualifying income, provided it maintains adequate substance in the free zone, earns income from the activities the rules allow, keeps non-qualifying income within the de minimis limit, and prepares audited financial statements. Income from dealings with the mainland is generally taxable at 9 per cent. The conditions are detailed, and a company that fails one of them loses the benefit for that year and the following four.

Other obligations to keep in view

• Transfer pricing: transactions with related parties must be at arm's length, and larger groups must keep documentation.
• Economic substance and beneficial ownership: filings continue alongside tax.
• Excise tax: applies to tobacco, energy and sweetened drinks and electronic smoking products.
• E-invoicing: the UAE is introducing a national e-invoicing system in stages; businesses should plan their systems for it.

Penalties

Late registration, late returns, late payment and incorrect filings each carry fixed administrative penalties, and voluntary disclosure of an error attracts a lower penalty than a discovery by the Authority. Penalties can be reconsidered on application within a short time, and disputes go to the Tax Disputes Resolution Committee and then the courts.

What to do now

1. Confirm that your VAT and corporate tax registrations are in place and your details are current.
2. Check that your contracts allow VAT to be charged on top of the price.
3. Diarise every filing deadline and keep the records the law requires.
4. If you are in a free zone, review the qualifying conditions with your adviser before the year end.
5. If you receive a penalty notice, take advice at once; the time to object is short.

Our compliance and corporate teams advise on the legal side of tax: contracts, structures, free zone qualification, penalty reconsiderations and disputes, working alongside your accountant. Contact us if you would like to discuss your position.